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A Spatial Model for Market Concentration Measure

Author

Listed:
  • Kerem Yavuz Arslani
  • Christopher Hannum
  • Wendy Usrey
  • Laurie Dufloth

Abstract

This project will build a theoretical model of real estate brokerage using assumptions based upon findings from the extensive brokerage literature. In this model differentiation in services and quality between brokerage firms combined with differentiation in preferences between sellers lead to measurable ranges of operation for brokerage firms. These ranges overlap, leading to the competitive nature of the industry. This theoretical model can be simulated in order to predict when ranges will grow or shrink and when competition within them will increase or decrease.Using MLS data for Northern Colorado we will measure the range of operation in ArcGIS for each brokerage firm and each agent in the sample by using actual geocoded data for listings and transactions. These ranges of operation will be used to calculate a market share of listings or transactions for the agent or brokerage firm within their own range of operation. For example, while a county might have 1200 listings a certain brokerage firm within that county may compete only within a smaller area of that county in which there are 120 listings. If the brokerage firm has 40 total listings our methodology would give them a market share of 33% within their operating range rather than 3% within the county.Using panel data techniques we will test whether higher values for our market concentration measure are correlated with higher or lower sales prices. We will examine whether market shares and the size of operating ranges for individual agents and brokerage firms vary predictably with local market conditions. These tests will help to determine what value better measures of brokerage firm market share and market concentration will have to policy makers and real estate practitioners, potentially in identifying desirable locations for new entrants and in predicting future trends.

Suggested Citation

  • Kerem Yavuz Arslani & Christopher Hannum & Wendy Usrey & Laurie Dufloth, 2018. "A Spatial Model for Market Concentration Measure," ERES eres2018_164, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2018_164
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    References listed on IDEAS

    as
    1. Osborne, Martin J & Pitchik, Carolyn, 1987. "Equilibrium in Hotelling's Model of Spatial Competition," Econometrica, Econometric Society, vol. 55(4), pages 911-922, July.
    2. Randy I. Anderson & Robert Fok & Leonard V. Zumpano & Harold W. Elder, 1998. "Measuring the Efficiency of Residential Real Estate Brokerage Firms," Journal of Real Estate Research, American Real Estate Society, vol. 16(2), pages 139-158.
    3. G. Donald Jud & James Frew, 1986. "Real Estate Brokers, Housing Prices, and the Demand for Housing," Urban Studies, Urban Studies Journal Limited, vol. 23(1), pages 21-31, February.
    4. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    5. Joyce M. Johnson & Hugh O. Nourse & Ellen Day, 1988. "Factors Related to the Selection of a Real Estate Agency or Agent," Journal of Real Estate Research, American Real Estate Society, vol. 3(2), pages 109-118.
    6. Jason Beck & Frank Scott & Aaron Yelowitz, 2012. "Concentration and Market Structure in Local Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 40(3), pages 422-460, September.
    7. John H. Crockett, 1982. "Competition and Efficiency in Transacting: The Case of Residential Real Estate Brokerage," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(2), pages 209-227, June.
    8. Leonard V. Zumpano & Harold W. Elder, 1994. "Economies of Scope and Density in the Market for Real Estate Brokerage Services," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(3), pages 497-513, September.
    9. Geoffrey K. Turnbull, 1996. "Real Estate Brokers, Nonprice Competition and the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(3), pages 293-316, September.
    10. Geoffrey Turnbull & Jonathan Dombrow, 2007. "Individual Agents, Firms, and the Real Estate Brokerage Process," The Journal of Real Estate Finance and Economics, Springer, vol. 35(1), pages 57-76, July.
    11. Edwin S. Mills & Michael R. Lav, 1964. "A Model of Market Areas with Free Entry," Journal of Political Economy, University of Chicago Press, vol. 72, pages 278-278.
    12. Marsha L. Richins & William C. Black & C.F. Sirmans, 1987. "Strategic Orientation and Marketing Strategy: An Analysis of Residential Real Estate Brokerage Firms," Journal of Real Estate Research, American Real Estate Society, vol. 2(2), pages 41-54.
    13. Zumpano, Leonard V & Elder, Harold W & Crellin, Glenn E, 1993. "The Market for Residential Real Estate Brokerage Services: Costs of Production and Economies of Scale," The Journal of Real Estate Finance and Economics, Springer, vol. 6(3), pages 237-250, May.
    14. Yinger, John, 1981. "A Search Model of Real Estate Broker Behavior," American Economic Review, American Economic Association, vol. 71(4), pages 591-605, September.
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    More about this item

    Keywords

    Brokerage; Competition; Housing Markets;

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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